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Monday, April 23, 2012

In the global race to the bottom it's impossible to tax the top

You would think Ontario would have learned it's lesson by now. The rules of economic activity in the era of globalization changed everything and created the race to the bottom, and now peak oil combined with globalization has created the race to the most cost efficient bottom and Ontario doesn't get it.

Ontario has created a new tax bracket for anyone with an income over $500,000 - that is if anyone making $500,000 or more stays in Ontario. I'm going to state a position now that should piss off my left-wing followers: taxing "the rich" will not work in this economic system. No seriously, it won't and it will probably hurt our economy more than if we didn't.

Boo! I know what your thinking.. the rich should pay more and maybe they should but as I often point out ideology and reality are usually quite far from each other in terms of results. In his movie 'Capitalism: A Love Story' Michael Moore mentions early on that through taxing the rich the U.S. accomplished miraculous feats such as the inter-state highway system and he is correct. At a time when no other country had anything of the sort high taxes resulted in an inter-state highway system and many other advancements. Today is a much different environment however.

With the advent of globalization and "free trade" rich corporations have now become global in nature. Not only are they global but they can have significantly more resources than most governments. A corporation that operates at this scale has no home. Ontario's manufacturing has suffered greatly from this fact, and raising taxes on the rich only puts the final nail in the coffin. Quite simply there is no reason the rich should stay there when its really just a matter of money to move. For a corporation with the money it is simply a matter of money to move their entire manufacturing process to take advantage of the booming slave labour market. This is a race to the bottom. In the days that high taxes on the rich resulted in a net benefit, workers were competing for higher wages, not lower ones. Taxing the rich doesn't address any of the core problems we are facing either as individual provinces or as a country. It is sad, but it's true.

The problem we're facing on this front is that of free trade. Free trade benefits those companies which can afford to take advantage of free trade, all others are destroyed by it as its practically impossible to match the amount of externalization (or socialization) of costs a company which takes advantage of free trade can. If we want to put money in our pockets (and thus in the system) we must stop the ludacris idea that selling resources cheap and buying goods made with them can end in nothing other than a net-gain, for it ends in a net-loss over time. Of course challenging this system also means we would further challenge IMF monetary fundamentals which equates to even more money in your pocket if successful.

Finally: inflation (devaluation). In my piece on 'the penny' you'll recall I mentioned that inflation is taxed, so that as cost of living goes up, and your income goes up, the system sees this as "richer" even though your net-wealth has not increased (maybe even decreased). This means that the $500,000+ bracket after pushing all currently rich out of the area, any up and coming business stars get dinged once they become "rich", and with inflation (devaluation) $500,000 is worth less and less every day. You get taxed more for less.

Conclusion

This is probably the stupidest thing Ontario could do right now.

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Richard Fantin is a self-taught software developer who has mostly throughout his career focused on financial applications and high frequency trading. He currently works for eQube gaming systems.

Nazayh Zanidean is a Project Coordinator for a mid-sized construction contractor in Calgary, Alberta. He enjoys writing as a hobby on topics that include foreign policy, international human rights, security and systemic media bias.